Senate Finance Committee Discusses Enforcement Mechanisms

Since President Obama put the idea of a debt trigger in the public's mind, it has become a hot topic. Third Way recently put out a piece detailing different types of triggers, including the recommendation from Peterson-Pew Commission on Budget Reform. And this morning, the Senate Finance Committee held a hearing on budget enforcement mechanisms.

At the Finance Committee hearing, Susan Irving of GAO and Paul van de Water of CBPP both were cautious about the effectiveness of triggers or other mechanisms. Specifically, when comparing Gramm-Rudman-Hollings (deficit targets and sequestration) and the Budget Enforcement Act (discretionary spending caps and PAYGO), they came to the conclusion that these mechanisms were better at enforcing an already-made agreement rather than forcing an agreement to be made. Former Sen. Phil Gramm, however, was more optimistic about the possibility of forcing an agreement, and for good reason: he is the Gramm in Gramm-Rudman-Hollings. He had a particularly colorful comment:

Our experience with Gramm‐Rudman showed clearly that if you hoped to deal with the deficit by building a four‐sided fort, pulling up the drawbridge and going back to sleep, you were going to be disappointed. Probably the best that any mechanism can provide is to help force action and tilt the process to encourage hard choices and compromise. At its best it can become a good stone wall to your back in a gunfight.

There was further disagreement on how an enforcement mechanism should be designed. Gramm said that spending sequesters/triggers/caps were the only way to go, because involving tax increases would somehow create perverse incentives for Congress to simply let the trigger be activated. Both Irving and van de Water disagreed with Gramm's view, saying that a spending-only approach ignored the other side of the equation and would be a poor way to budget, instead offering their support for a trigger that hits both spending programs and tax expenditures. However, while Irving supports the idea that the broader the trigger, the better, van de Water would prefer to exempt low-income programs from a trigger, specifically mentioning the Corker-McCaskill spending cap as a poor enforcement mechanism.

Even though the three had some disagreements about enforcement mechanisms, they did agree on one thing: enforcement mechanisms are useful budgetary tools, but they are not substitutes for the real policy decisions necessary to get our fiscal house back in order.

CRFB has long supported debt targets and triggers. In a paper we released last week, we explained the key considerations to make when designing a new debt trigger, including whether it should be a "forcing" or "enforcing" trigger and what should be hit versus what should be exempted if the trigger is pulled. CRFB believes the best course is to enact a forcing trigger as soon as possible, perhaps as part of a debt ceiling increase, to spur action on a budget deal, followed by enactment of an enforcing trigger with any subsequent budget deal to keep the plan on track. CRFB also supports a trigger that is as broad as possible, making adjustments to every category of spending and revenues, including tax expenditures.